SM, you are absolutely right. And I think I wrote to pass the same message.
Assuming that buyers and sellers are equal in the market. And
OI = number of open contract = number of seller = number of buyer
OI reduces = less number of Open contract = existing sellers closed their position by buying back = no new buyers coming back / or buyers close their position.
In other words no new net buyer/seller coming
OI increase = more number of Open contract = new sellers coming in = more buyers are coming in
In other word new net buyer/sellers are coming in
IMO, It is difficult to interpret OI increase / reduction only from the perspective of buyer or seller. Cause they are always equal.
But if we use OI increase/ reduction with market movement and then use the typical action that a novice trade takes and a professional will take at a point, then we can make some sense out of this number. Atleast we can guess, who will be taking buy action and who will be selling.
(remember one of my previous post where I raised the caution on extreamely high PCR / OI position when nifty was kissing 5150 level. The situation was entirely different then. Put OI was high but maybe MFs were buying the protection there when market was already at high level).
In my approach, i try to visualise the party who is taking other side of my trade and try to attach them to novice/ pro category. I always prefer to trade with Novice on the other side. I can't dare to goto boxing ring against Tyson.
So if we know the typical trading pattern of a novice trader (cause we have been there once upon a time) i.e. - book profit quickly, play with the sentiment of previous trend, let losses run till it becomes painful to see the loss etc. then novice would be playing with down trend, book profit on calls asap they are in green etc.
That is why I interpreted that novice would be selling their calls now and will be buying puts.. Because their decision will be impacted by down trend, they would have seen losses on their Long Call in last few days so they are cutting losses as soon as they see some improvement in their loss and jump to buy puts now.
And if Put OI has increased, means that there are more buyer/seller in the market. But question is who will be buying put and who will be selling it. Who will be the party buying put after 600 points fall and expecting further fall for this put to come ITM. And if you see the increase in Put action at 4200/4300/4400 level, the someone was buying those Puts as well. So quite likely that they have already protected their short put 4600 position by buying lower puts (i.e. creating spreads)
Thats my interpretation as per the action of today.. OI picture is dynamic, and specailly the position taken by professionals is quite agile. If market starts going down in next few days, Pro won't mind taking quick loss and shifting their positions. In between they have already pockted the time decay of few days.
This is just my interpretation. hope it is not confusing and giving u pointers to look beyond the numbers that medial talks about ...
Happy Trading
(SM bhai jan - aapne Mitali to Shankar, Sukhani and others kee category mein rakh kar achha nahi kiya.. She looks better then those dumb red/green candle on our price chart.. so during trading hrs when mkt is testing our patience, it is good to see her on CNBC for a break).